The Need to Update Estate Plans

A Baltimore County widow whose husband died in 2014 contacted Paul Schwab about a problem she was having collecting on two small life insurance policies.  The policies had originally named her as the beneficiary.  For reasons that were probably valid at the time, her husband in 1984 changed the beneficiary of the policies to the Trustee named in his Last Will and Testament.  The 1984 Will contained a trust for his wife during her lifetime with any balance remaining at her death to be paid to his descendants.  The 1984 Will further provided that a friend who was a partner at a large law firm would be the initial trustee with another partner at that law firm as the alternate trustee.  In the event neither lawyer was able and willing to serve, the Will stated that the partners at the large firm could designate another partner to serve as trustee. 

At the time of her husband’s death, all the couple’s assets other than the life insurance policies were jointly owned or named the other as the beneficiary.  The death benefits of the policies totaled approximately $77,000.

One problem was that both of the named trustees died before 2014.  Another was that it did not make sense given the amount of insurance, the present tax laws, the widow’s financial position and the costs of administering the trust to have the funds remain in a trust.  The family wished instead to have the proceeds transferred to the widow.

Paul outlined a couple of options to the family.  One was to contact the law firm and see if it would refuse to appoint a successor trustee and then file a complaint in the Circuit Court for BaltimoreCounty asking it to (i) designate a successor trustee and (ii) reform the trust to authorize the Trustee to terminate the Trust and pay the funds to the widow.

Another option was to contact the law firm and see if it would first designate a Trustee and collect the insurance proceeds and then with consents and indemnifications from the widow, the children and the grandchildren pay the funds in the Trust to the widow.  Paul contacted the law firm on this option.  Fortunately, it agreed to appoint a Trustee and after collecting the insurance proceeds to pay the balance to the widow.

While the family will ultimately accomplish its goal, it incurred legal fees and delays that could have been avoided if the husband between 1984 and 2014 had updated his estate planning documents and reviewed the beneficiary designations on his life insurance.

If you have questions or would like to update your estate planning, please call Paul Schwab at (410) 821-6800 or email him at pschwab@azraelfranz.com.